For a lot of established consumer brands whose main sales channels have relied on wholesale distributors and brick-and-mortar retailers, the lure of selling through DTC e-commerce has been amplified by shifting business trends and digital transformations. COVID-19 has accelerated the shift to digital channels even further.
2020 produced a seismic shift by consumers to digital channels. In the first half of 2020 alone, e-commerce penetration in the U.S. was equivalent to all of the preceding decade. In Europe, digital adoption increased from 81 to 95 percent since the Pandemic began.
There’s no turning back now, and a lot of compelling reasons to go with digital sales channels.
- Less reliance on third-parties;
- fewer contracts to negotiate;
- better control over branding and fulfillment.
DTC e-commerce has been a bonanza for up-and-coming brands looking for easy market entry. It’s also benefitted legacy brands who are eager to grow their online presence while gaining the opportunity to learn more about their consumers, personalize customer journeys, and increase customer lifetime value (CLV).
But DTC e-commerce can be a huge undertaking that requires the effective cooperation of sales, merchandising and tech teams–and avoiding expensive mistakes. Here are some constructive ways to work through the decision whether to take the plunge. In Part 2, we highlight some of the DTC e-commerce strategies that have proven most successful.
Overcoming fear of the unknown
Fear of making big, expensive mistakes is what holds a lot of companies back from deploying a DTC e-commerce strategy. There can be fears of:
- blowing it with consumers or losing previously loyal customers due to poor fulfillment or other experience;
- making rookie mistakes when building out storefronts, shopping carts, or setting up fulfillment partners;
- digital sales taking away business from other channels, possibly at a higher cost.
Building the business case for DTC e-commerce
With the considerable technology expenses and hiring costs of an agency to build a DTC e-commerce site, it’s prudent to make certain at the outset that you consider the big-picture implications. Ask yourself:
- What’s the channel strategy and how does DTC fit in it? Do you need to generate more customer insights? Increase overall sales? Increase market share? Assess the impacts DTC might have on existing channel partners.
- Is there a distinct merchandising and pricing strategy for DTC? It may or may not be the same as you’re using for current channels. Items might be sold only in bulk, or you may sell items only within a certain price or weight range to make sure that shipping, return logistics and fulfillment don’t put a drag on profits.
- How will we achieve all the capabilities needed to launch a DTC e-commerce site? You’ll probably use a mix of SaaS platforms, strategic partnering and in-house IT specialists to get it moving. Netsuite and Magento are two of the most popular open-source e-commerce platforms used by larger brands, though some also use Shopify Plus.
Making DTC e-commerce economics work
Increasing sales and gaining deeper consumer insights are two immediate benefits. But the margins have to be there too. For DTC e-commerce to be profitable for a brand accustomed to selling through physical stores, a smart planning strategy is the key to bottom-line success.
There’s a lot less development cost if you join an online marketplace rather than going with an independent online store. Many brands have established storefronts on digital marketplaces like Amazon, Walmart and — for scappy startups — Facebook Shops. Some are also using Social Commerce channels like Instagram and Pinterest. On Amazon, though, certain frictions and uncertainties created by the company’s tinkerings with brand policy have made many brands wary of relying exclusively on Amazon as a storefront.
Determining revenue goals
How does DTC fit into the revenue picture? Start by defining the role DTC needs to play.
There are several objectives it might fulfill:
- Generating a certain percent increase in sales. The point here is to capture sales that would otherwise have been lost to shoppers looking exclusively for an online purchase.
- Differentiating the brand. With the emphasis on storytelling and generating moods through photography and imagery, consumers can learn a lot more about your brand’s origins, ethics, etc.
- Learning more about customers to gain insights into preferences. 75 percent of online shoppers say they prefer a personalized experience. A lot of fashion and beauty brands offer exclusive online presales to their registered online customers based on previous purchases and shopping behaviors.
- Heightening brand awareness among digital natives. Many Gen Y and Gen Z consumers never even encounter a traditional selling channel. You need them to get to know you in the environments where they hang out.
Using this analytical framework, the answer to whether or not to pursue a DTC e-commerce strategy should start to emerge. Assess your goals and capabilities first, and the rest will fall into place. Part 2 of this topic will show how several brands have successfully made their plunge into DTC.
